Conservatism is Bad for the Economy

Submitted by wes.whitman on 2018, April 16 - 00:00

Here is why conservative proposals to cut deficits are idiotic:

Conservatives assume that money is a commodity, originally corresponding to gold used as a medium of exchange. This is both currently, and historically, inaccurate. Money originated as a system of credits or IOUs.

Use of precious metals as money emerged when warring city-states invaded and plundered neighboring communities. They would steal the gold and silver; the king would melt down the metals and coin them to divide up the booty among the soldiers. They would then demand that the conquered subjects pay taxes in these new coins, which would create a demand for the soldiers' coins, allowing them to trade the coins for goods and services. This is how governments created market systems where trade rather than gift-economy type communism was the norm.

But, prior to metallic money and robust markets, money was already a thing—it just wasn't a nigh universal medium of exchange and most people could actually go their whole lives without ever using it. Money was a unit of accounting and a credit (i.e. a debt or IOU). We know this from archeological and anthropological research. Fiat or debt-based currency systems were the original and the norm. Even when metals began being used as money, it was still a debt-based or IOU system. The metal was simply a token or credit. Once you understand this, you can easily understand why "balancing the budget," "being fiscally conservative," and "reducing deficits" is completely idiotic! Public finances are not like private finances!

Every dollar is an IOU from the government, a credit token. It is a credit (asset to the consumer) that functions as a liability to the State. We pay taxes in government money because the money is the IOU that the government first gave us—it's the IOU that gives us a claim on government services. That being said, if every dollar is an IOU from the government, it follows that every single dollar is also a debt. All private assets in the form of dollars correspond to public liabilities in the form of debt. The only way you can possibly pay off the debt is to collect back every dollar, every IOU, and thereby destroy the entire monetary system. To truly balance the budget and pay off government debt would be to abolish the market system.

If the economy grows and there is an increase in real wealth, the State must issue more money to represent that new wealth (if it doesn't, there will be a deflationary depression with high unemployment and rampant poverty). If real wealth decreases, it may need to contract the money supply by raising taxes)—this will help stabilize price levels. At the same time, it can print more money and invest it in productive purposes in order to stimulate the economy and increase real wealth. As long as the new money printed actually goes to productive purposes and increases real wealth, it will not cause inflation or devaluation of the currency. Printing new money only devalues currency if the money is used for non-productive purposes. For instance, if government printed money for a universal basic income or for funding universal healthcare, it would cause inflation. So these programs have to be funded by taxation or redistribution. If that money is used to make society more productive, say through a job guarantee program or by investing in automation technology, then no inflation will occur so long as the the amount printed does not outrun the increased productivity.

Conservatives simply don't understand economics, which is why they are literally destroying America. The extent to which you pay off public debt is the extent to which you destroy money or contract the money supply, which means you shrink the economy, decrease production, and raise the unemployment rate because the aggregate money supply isn't sufficient to allow for full employment without massive downward redistribution (which conservatives also oppose).

When the top tax rates are high, it penalizes excessive accumulation and makes the marginal cost of raising wages for low-income workers greater than the benefit of raising wages for executives and high-income earners. Consequently, when the U.S. had high rates of 70% income tax on the top bracket, wages for low-income workers tended to increase gradually as GDP and profits rose. Since the tax rate on the top bracket was cut, wages have stagnated and haven't risen at all. In fact, wages have fallen in real terms because they were outrun by inflation! GDP has risen, as have corporate profits, but all the new wealth has accumulated into the hands of stockholders and CEOs, as low tax rates at the top mean that money is better spent at raising wages of top-earners than it is for raising wages of low-income employees.

Suppose I am an executive at a company with 10 employees, all earning minimum wage. Let's also assume that I am already in the top tax bracket and earn $500,000 a year after taxes. Let's assume that the top bracket is taxed at 90%. That's not historically unprecedented in the U.S., btw. After all of the expenses, assuming there is no easy way to invest the remainder in automation or other things, I am left with $100,000 more in profit this year than the prior year. If I increase my own income, it will be taxed at 90% which means that I have two options: I can raise my own salary $10,000 (since $90,000 of the $100,000 would be taxed away were I to try to pocket it all) or I can give each of my employees an additional $10,000. I know that raising the wages of my employees by $10,000 per year will boost morale, thereby increasing productivity and guaranteeing that my workers will neither strike nor seek employment elsewhere. Consequently, I will weigh the costs and benefits and decide that it is better to give my employees a raise than it is to give myself a raise, since 90% of my spending will be for naught if I pay myself.

Insofar as conservatives want to lower taxes for the wealthy and top income earners, they guarantee that wages will continue to be low and that working people will suffer. There's a wealth of statistics and data, shared in my previous posts, that proves this. Average wages only increase when you have highly progressive taxation (i.e. when the wealthy pay much higher rates than the poor and working classes below them).

These are things that have recently been automated by pizza places in America:
—Making pizzas, automated by 3D Chef robots
—Cashiers, replaced by iPads
—Pizza delivery, automated by Starship Technologies using robots to deliver pizzas (currently taking place in DC and San Francisco)

They also have robot baristas that can make coffee, and they do it better than human baristas! And the delivery robots can be used to deliver parcels and other things. Estonia already has delivery robots for its postal service. Amazon has explored the idea of delivering packages via drones.

Every aspect of the fast food industry can be automated. Once automated, each pizza or burger joint will only need a single employee. As workers push for higher wages, the push for $15 minimum wage, the cost of automation will become cheaper than the cost of paying workers.

We also have self-driving cars, which get into far fewer accidents than human drivers since they do not get distracted. Taxis, Uber, and semi-truck transportation are all due to be automated within the next 30 years.

We are on the edge of a Jetsons economy, where automation takes care of the work. The internal combustion engine was introduced in 1869. Within 34 years, powered air flight was accomplished. In 1856, Pasteur began his research into fermentation and germs, which led to the discovery of vaccines and proved that germs cause diseases. Anthrax and Smallpox were eradicated from the industrialized world as a result. Human progress now moves exponentially. We were introduced to the internet in 1990, now it is essential for communication, education, and news.

The reality is that we don't live in the 1980s and Reaganomic conservative economic policies are not in touch with the times. 40 percent of U.S. jobs are expected to be automated within the next 15 years and are not expected to be replaced by other jobs. Unemployment is permanent, and it will just increase from here. We can either let everyone starve, or we can explore "far left" ideas like universal basic income and federal job guarantee programs. A society with a 50% unemployment rate will collapse without basic income!

The old conservatives will just fiddle while Rome burns. We need progressives that will implement policies that make the continuation of modern civilization possible.

Here's an idea. Instead of raising the national minimum wage, let's require all employers to pay something like BAH and BAS to their employees.

Currently, workers are pushing for $15 minimum wage. Such a change would incentivize employers to start automating more, leading to more unemployment. Many workers will find that they won the fight for $15 minimum wage only to find themselves unemployed. Personally, I would prefer more automation, but not unless we are all given a universal basic income to live on. When robots take the jobs, you gotta pay the folks that can't find jobs. Since we don't have a basic income yet that can serve as a safety net to catch the displaced workers, I propose that we don't increase the federal minimum wage, but simply mandate that employers pay BAH and BAS like the military does. Soldiers get a Basic Allowance for Housing (BAH) and a Basic Allowance for Subsistence (BAS), which theoretically covers the necessities and ensures that they receive a living wage. BAH rates vary based on locality, marital status, and number of dependents. BAS is based on the national average cost of food. How it works is like this: soldiers earn their Basic Pay, but that is supplemented by BAH, BAS, and some other benefits. (Currently, there is a proposal to eliminate BAH, BAQ, and BAS and replace them all with a single locality allowance.)

I don't want ordinary civilian payrolls in the private sector to be as complicated as military pay, but it would be good to have it be more like military pay in some ways. Each employee should receive a basic pay, something at or above the federal minimum wage of $7.25 per hour. Then, they should also receive a supplemental Living Wage Allowance. This allowance should cover the average cost of housing and food in the given locality. Small business that don't make enough profits to afford to pay the Living Wage Allowance should be able to petition the government for a waiver, allowing the employer to opt out and, in turn, the federal government should pay the Living Wage Allowance for such businesses and employers, thereby creating a sort of minimum income guarantee (not to be confused with basic income guarantee) for all working people.

Now, personally, I would prefer a universal basic income. However, in the absence of a basic income guarantee, I would argue that we are morally obligated to guarantee all workers a living wage AND to guarantee that all people can find work. If we do not guarantee a universal basic income to all people, then we are morally obligated to guarantee that all people can find employment at wages sufficient to live on. Currently, we have high unemployment. People can't find work or can't find good enough work (work that pays well enough) to live on.

The government can restore full-employment in a number of ways: it could do so through a Federal Job Guarantee program or it could reduce the number of hours in the workweek and adjust the minimum wage by a corresponding amount. Let's assume that an employer has four workers each earning $7.25 an hour. Currently, the workers collectively do 160 hours of work each week. Suppose the State cuts full-time hours down from 40 hours per week to 30 hours per week, making overtime pay at time-and-a-half kick in sooner. Then, the minimum wage is raised from $7.25 per hour to $9.67 per hour, so that income of workers stays the same. Now the employer has the same number of employees, still paying them the same amount of money. However, he loses 10 hours of labor from each worker every week, meaning a total loss of 40 hours of labor from his four employees combined. The employer still has 160 hours of work that need to be done. So, he now has two options: he can pay overtime to have existing employees do that work or he can hire a new full-time employee. If he wants his current employees to work overtime to cover that lost 40 hours, he must spend $19.34 per hour or $3,094.40 per month to cover overtime pay. It would be much cheaper for him to just hire a new employee at $9.67 per hour or $1,160.40 per month. Thus, the change in full-time hours and minimum wage discussed here would induce employers to pick up one new employee for every four existing employees. Adjusting full-time hours and adjusting minimum wage would be just as effective at bringing about full employment as a job guarantee program could be. Let’s suppose that some small businesses don't earn sufficient profits to be able to afford to pay an additional employee the minimum wage. Well, then we let that employer apply for a special subsidy for small businesses, which says that the State will pay the wages for 1 out of every 5 employees provided that the business does have 1 additional employee for every 4 existing prior to the change. Alternatively, the State could invest in infrastructure and create new jobs by spending on that. This would be the job guarantee route. Either way, full-employment would emerge.

(Now, the numbers I use in this example are those needed to restore full-employment if the unemployment rate is 25%. Since the unemployment rate is actually closer to 5%, the necessary adjustment would actually be much smaller, as it would only need to induce employers to hire one new worker for every 20 existing workers. Increasing minimum wage by 40 cents per hour and reducing the workweek to between 36 and 38 hours would be sufficient to restore full-employment under current conditions.)

Now, you may think that government paying subsidies and allowances for employees of small businesses that can't afford to pay the workers a living wage would be too expensive, but consider this: full-employment would be restored. All unemployment would be short-lived and transitional, meaning Unemployment Benefits would serve as a safety net in the interim. Most means-tested welfare measures, then, can be eliminated. The permanently unemployed would be covered by Disability Benefits. We could give everyone a guaranteed minimum income, without having to increase revenue at all! We'd actually save money because we could do away with inefficient means-tested welfare programs.

Let me be clear, I think that such a conservative MMTer approach would actually be more of a bandaid than a solution. Eventually, all jobs will be automated. Eventually, it will be impossible to maintain full-employment no matter what the State does. At that point, there will be only two options: universal basic income or full-communism. I think the basic income route is the more libertarian of the two options.

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